Environmental Taxation

Jeremy Gatt

S. 6161. Introduction

Taxes are generally seen as a means to an end, specifically for financing governmental expenditures, but they can also serve as an end in themselves by influencing human behaviour. In fact, the “carrot-and-stick” method has commonly been applied through various tax policy initiatives aimed towards environmental protection.

This implies positive state intervention via environmental tax incentives and subsidies for products with minimal or no environmental damage and negative state intervention via environmental taxes or higher consumption tax rates on products with a damaging effect on the environment. The former reduces the tax burden on taxpayers but decreases tax revenues while the reverse situation transpires as the latter results in a negative effect on taxpayers and a positive impact on tax revenue. By internalizing the environmental costs of emissions in the market price to be paid for the product, the demand for these products should reduce. Nonetheless, insofar as reliable and cheaper alternatives for fossil fuels and clean technologies are lacking on the market, undertakings will perceive such tax policy measures as an attack by the government on t...